Even as assets under management rose in 2016, companies that manage investments still face challenges, as net new flows – the industry’s lifeblood – were tepid and profit margins remain under pressure.
Still China and India, which continue to increase the ranks of the world’s affluent, represent a ray of hope and potential for the industry, according to Global Asset Management 2017: The Innovator’s Advantage, which was released Tuesday by the Boston Consulting Group (BCG) in New York.
“For the first year since the financial crisis, revenue and profit fell for the industry,” said Brent Beardsley, senior partner and global leader of Boston Consulting Group’s asset and wealth management segment.
Beardsley said assets under management did expand 7 percent last year, but that was mainly due to asset appreciation in buoyant financial markets.
Net new flows only edged up 1.5 percent and it seems unlikely the industry will return to the 4 percent and 5 percent increases that marked the years leading up to the 2008 crisis, said Beardsley.
China was the bright spot as assets under management jumped 21 percent, driven by a 17 percent increase in net inflows. Qin Xu, a partner in Boston Consulting Group’s financial institutions practice in Hong Kong, said growth occurred in both the retail and institutional segments.
Retail investor growth comes from the high household savings rate in China and an expanding high net worth clientele, while institutional growth is driven by insurance companies and pension plans that are becoming increasingly significant players in the market, she said.
“While institutional investors are growing in China, it is still lower than in more developed countries like the US,” she said.
The Chinese market and its investors are becoming more sophisticated. “An aging population and the growth of wealth are expanding demand for dedicated products, including target-dated funds and ETFs (exchange-traded funds),” the report said.
BCG said there remain two promising paths to the Chinese market for overseas companies: establishing a joint-venture partnership with a local company or obtaining a private fund-management license as a wholly foreign-owned enterprise.
Foreign companies should also understand the importance of offering products in China that compete on the basis of yield rather than stability which is favored by investors in Western markets.